First bank drops home loan rates after RBNZ shift

More than 240,000 mortgage payments have been missed since April - worth about $2.2 billion....
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Westpac is cutting its home loan interest rates - the first bank to move after the Reserve Bank changed its tone on the outlook for the official cash rate.

Its one-year special rate has dropped 25 basis points to 6.89 percent, its six-month special rate 19 basis points to 7.05 percent and its 18-month special rate by 10 basis points to 6.79 percent.

Standard rates will drop by the same margin.

It comes after the Reserve Bank noticeably softened its stance on Wednesday.

Although it had considered an increase in the official cash rate in May, this week it said inflation was coming down and it expected interest rates to ease in line with that.

Monetary policy committee members had discussed the possibility that high interest rates might be having more of an effect on the economy than expected.

"We're at a unique stage of the cycle where some customers may be looking to re-fix at lower rates from recent highs," said Westpac's general manager of product, sustainability and marketing, Sarah Hearn.

"We do also acknowledge that some customers may be still re-fixing their loans from the historically low rates we have seen over recent years and may still be concerned about their increasing costs.

"We continue to proactively call home loan customers who may be facing into financial difficulty to ensure they're well supported and understand their options."

ASB economists, meanwhile, said the tide was turning for interest rates.

They said they expected the official cash rate to be cut from November, but that it could happen earlier.

Short-term mortgage rates would come down later in 2024, they said, although rates out to five-year fixes were below the 20-year average so substantial further falls were unlikely.

They said picking a fixed rate was a trade-off between the cost of the rate, the interest rate certainty that came with a longer period, the flexibility of shorter fixes and the potential for rates to ease over the coming years.

"Mortgage rates could dip lower, due to anything from RBNZ actions through to renewed threats to the economic outlook. However, economic conditions suggest that mortgage interest rates will settle in a higher range than the recent - and historic - lows struck during Covid-19.

"We suggest all borrowers pick a strategy that suits personal budgets - including a tolerance for changing interest rates - and need for flexibility, as well as the goal of minimising interest rate costs."